【文章內(nèi)容簡(jiǎn)介】 20040060080010001200140016001980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2022 2022billions of dollarstotalpu blicprivateSource: Japan: Ministry of Finance. The YenDollar Nominal Exchange Rate, 1970 2022 Source: International Financial Statistics, IMF 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04L o g S c a l eL o n g r u n t r e n d a p p r e c i a t i o no f M c K i n n o n a n d O h n o ( 1 9 9 7 )N o a p p a re nt t re nd fromt he m i d 9 0s t o 2 005100200300400Implications for Interest Rates: The Negative Risk Premium ? To sustain the interest differential between yen and dollar assets, consider an augmented interest parity relationship: ? From the 70s to the mid 90s, the interest differential, i – i*, was driven primarily by the negative term from the erratically appreciating yen, which peaked in April 1995. ? Since the mid90s, ? 0 and the interest differential has been driven primarily by the ? term, which is also negative (Goyal and McKinnon 2022, McKinnon 2022). ????? esii * i s ? Japanese nominal interest rate. Yen price of one dollar Risk premium on yen assets i* . nominal interest rate Expected depreciation of the yen es?es?es?Figure 8: Interest Rates in the US and Japan, LongTerm: 10Year US Treasuries and JGBs, 19802022 024681012141619 80 M 1 19 83 M 1 19 86 M 1 19 89 M 1 19 92 M 1 19 95 M 1 19 98 M 1 20 01 M 1 20 04 M 1percent per annumJapanUSFigure 8: Interest Rates in the US and Japan, ShortTerm: Money Market Rates, 19802022 0246810121416182019 80 M 1 19 83 M 1 19 86 M 1 19 89 M 1 19 92 M 1 19 95 M 1 19 98 M 1 20 01 M 1 20 04 M 1percent per annumJapan ( ca ll m on ey r ate )US ( f eder al f un ds r ate )Interest Differentials, Portfolio Balance, and the Impossibility Free Floating ? As dollar claims accumulate, a sufficiently large interest differential to induce private portfolio holdings of dollars bees unsustainable—as in Japan when yen interest rates approach zero. ? The problem worsens when US interest rates are unusually low, as in 2022 and 2022. ? Then, increasing official foreign exchange reserves bee the dominant mode of financing Asian current account surpluses. ? And the private unwillingness to hold dollars makes a free float impossible. Table 4: East Asian Current Accounts (CA) and Changes in Foreign Reserves (RC): 1997 2022 Billions of Dollars 1997 1998 1999 2022 2022 2022 2022 2022* Japan CA 97 119 115 120 88 112 136 172 RC 1 5 74 70 41 64 201 171 Singapore CA 15 19 15 13 16 19 28 20 RC 6 4 2 3 5 7 14 8 Taiwan CA 7 3 8 9 18 26 29 20 RC 5 7 16 1 15 39 45 35 Indonesia CA 5 4 6 8 7 8 8 1 RC 2 6 4 2 1 4 4 0 Korea CA 8 40 24 12 8 6 12 28 RC 14 32 22 22 7 18 34 44 Malaysia CA 6 10 13 8 7 7 11 16 RC 6 5 5 1 1 4 10 12 Philippines CA 4 2 7 6 1 4 2 3 RC 3 2 4 0 0 0 0 1 Thailand CA 3 14 12 9 6 8 8 7 RC 12 3 5 2 0 6 3 8 China CA 37 31 21 21 17 35 31 55 RC 35 5 10 11 47 74 117 181 HK SAR CA . 3 10 7 10 14 17 13 RC 29 3 7 11 4 1 6 5 East Asia CA 133 241 230 217 182 248 255 335 RC 19 56 148 117 109 216 434 463 Data source: IMF: IFS. *Preliminary from EIU data Figure 10: US and cumulative East Asian Current Accounts (Billions of US Dollars) Data source: IMF: IFS. 1 0 0 0 8 0 0 6 0 0 4 0 0 2 0 002004006001990 1992 1994 1996 1998 2022 2022 2 0 0 4 E I UBillion US DollarsT o t a l E a s t A s i aU n i t e d S t a t e s ? “ Revived Bretton Woods” ? EA Exchange Rates deliberately undervalued to generate a trade surplus. ? Exports are desired to promote “development”, particularly in manufacturing. ? Asian governments are willing to invest in very low yield US Treasuries, and to accept American FDI with high profit repatriation. ? US gets finance for its fiscal deficits ? The ongoing US currentaccount deficit need not be corrected in the near future The Dollar Standard and East Asia’s Trade Surplus: The DFG Interpretation* * Dooley, FolkertsLandau, and Garber (2022)(2022). The Dollar Standard and East Asia’s Trade Surplus: The MCK Interpretation, I ? The current regime: ? With the dollar as international money, the efficiency of world trade and payments increases. ? With a stable . price level, peripheral countries will peg to the dollar to anchor their own price levels— particularly East Asian countries highly integrated in trade. ? They converge to relative purchasing power parity (PPP) if nominal exchange rates remain fixed: no exchange rate “undervaluation” The Dollar Standard and East Asia’s Trade Surplus: The MCK Interpretation, II ? Proposed East Asian exchange rate changes: discrete appreciation or floating ? No predictable effect on trade balances ? Any appreciation will slow economic growth and lead to deflation ? Loss of credibility to maintain the exchange rate at any level ? Possibility of an indefinite upward spiral in the dollar value of East Asian currencies